While larger regional banks dominate the supermarket branching landscape, community institutions like Southbridge Savings show that the model can be successful for smaller banks, as well.

Over the last decade, several regional and community banks have touted extra convenience for their customers by opening branches within local supermarkets. Citizens Bank has had a primary focus on this market. So why is the Providence, R.I.-based bank closing some of its in-store branches and is it a sign that the in-store branch phenomenon is waning?

In April, Citizens Bank received permission from the Massachusetts Division of Banks to close a branch located within a Shaw’s supermarket. The branch, located in Brighton, will not remain open because of a relationship the bank has with a Shaw’s competitor. But Citizens executives say the closing is anything but an indicator that supermarket bank branching is slowing.

According to Hal Tovin, group executive vice president at Citizens Bank of Massachusetts, the institution has an exclusive relationship with Stop & Shop supermarkets in Massachusetts. However, the bank still partners with Shaw’s in New Hampshire. As Citizens’ contract with Shaw’s expires at each location in the Bay State, the bank is not renewing the agreements and closing the branches.

According to Judy Chong, a Shaw’s spokeswoman, the supermarket chain has 50 stores in New England with full-service, in-store branches. Eastern Bank, Sovereign Bank, TD Banknorth and several community banks are some of the other financial institutions with space inside area supermarkets. Chong said inviting a new bank into a location is reviewed on a case-by-case basis. While there is no set criteria for what type of bank the supermarket will partner with, Chong said the company looks for a financial institution that can operate in multiple store locations. She also said because customers have come to expect a bank within their supermarket, the company makes a concerted effort to house a bank in the newly built and larger stores.

Stop & Shop spokeswoman Faith Weiner would not comment on the contract between Citizens Bank and the supermarket. However, she said the company seeks out financial institutions that have a recognizable brand. Citizens Bank and Stop & Shop partner in Massachusetts and Rhode Island. Stop & Shop and Peoples Bank work together in Connecticut.

Although Citizens won’t have a presence at Shaw’s for much longer, this doesn’t mean the bank isn’t reaping the benefits of in-store branches. Tovin said on average, Citizens is opening nine or 10 in-store branches throughout New England each year.

“It really is an effective growth engine,” Tovin said.

A good chunk of the bank’s business comes from the in-store branches.

“It drives a significant percentage of our new account growth,” Tovin said.

While Citizens has thrived on using in-store branches to grow its business, another regional bank doesn’t view their in-store branches the same way. Maine-based TD Banknorth has operated supermarket branches by embedding them into the bank’s regular retail regions. The bank has built these branches in areas like Chelmsford, Worcester and Springfield. In Massachusetts, where the bank has acquired several institutions over the years, some of these in-store branches have come with the purchase of a new bank, said Ronald Trombley, executive vice president of retail banking in Massachusetts for TD Banknorth.

“We see it as a complementary strategy in certain markets,” Trombley said. “It enhances the distribution market.”

TD Banknorth doesn’t use in-store branches as a way to enter into a new marketplace.

“It’s not core of what we do,” Trombley said.

Since 1997, he said, the bank has focused primarily on acquisitions in Massachusetts. Because in-store branches tend to have a “glass ceiling” when it comes to deposit bases, TD Banknorth doesn’t use these locations as a substitute for stand-alone branches, Trombley said.

“There is a structural limitation,” Trombley said, adding that in order for the bank to grow, branches needs more space which the supermarkets can rarely provide.

A Different Model

Despite Citizens’ success, Tovin admits the in-store branch model is different than a regular branch model.

“Making it work is tricky,” Tovin said.

Tovin said the bank has to work at finding a strategy that serves new customers.

“It’s a different model,” Tovin said. “You have to look at the environment differently.”

The employees who interact with supermarket customers tend to be different than those in stand-alone branches. Tovin said the bank will hire people with retail backgrounds for the in-store branches.

“You have to staff [the branch] differently,” he said, adding the bank uses a lot of part-time employees, like college students.

While it may seem easier for a regional bank to keep in-store branches going strong, at least one community bank is proving that supermarket branches aren’t an impossibility for smaller institutions, either.

Southbridge Savings Bank, with more than $350 million in assets, has used the in-store branch model since 1996 when it was approached by the Big Y supermarket chain with the idea.

“They opened up doors for banks to go on in,” said Janet Garon, executive vice president, treasurer and chief executive officer at Southbridge Savings.

Even for a smaller institution, in-store branches have proven to work.

“They generate more business than a traditional [branch] would in the same period of time,” Garon said.

Both Tovin and Garon say many financial institutions haven’t mastered the in-store branch strategy and both agree the phenomenon is going strong even as bank’s continue to refine the process.

“A lot of banks haven’t figured out the model,” Tovin said.

By making these branches simply a service model and not a place where new business is formed, banks tend to increase costs, but not customers, he said.

“We look at it as an acquisition model,” Tovin said.

Garon said there is a “need to compete” and the supermarket locations are a way to stay ahead of your competitor.

“We’re treating it as a different business,” Garon said.

Because supermarket branches are treated differently, the staff also must react differently. Garon said bank employees must have an ability to spot a good opportunity by talking to supermarket customers. Approaching them and planting a seed about a specific bank product might bring that customer back in the future, whereas customers walking into a traditional bank already have an intention and perhaps a specific product in mind when they arrive.

Southbridge Savings currently has six in-store branches – five in Big Y and one in Shaw’s. The bank will open a seventh supermarket branch location this fall.